US - VN trade likely to boom under TPP

Update:
April, 27/2015 - 08:33

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Forty years after the war ended, relations between Viet Nam and the United States have grown significantly, especially in trade. In 2014, Viet Nam became the top ASEAN exporter to the US with a record trade surplus of almost US$25 billion. Bilateral trade reached $36.3 billion last year. Both nations are participants of Trans Pacific Partnership (TPP) trade negotiations, so bilateral trade is predicted to expand. Viet Nam News spoke to experts about how Viet Nam can leverage its reforms and economic competitiveness to reap the benefits of these new opportunities.

Adam Sitkoff

The US has become a key trading partner and investor for Viet Nam. In the next two or three years, do you think the US could become the top investor in Viet Nam?

It is a credit to the Vietnamese and American people that our two countries have been able to move beyond the tragedies of our shared past to build such a vibrant and strong friendship. One of the relationship's strengths is its multi-faceted nature.

Economically, the United States is a key trading partner and investor in Viet Nam. Politically, the two countries share the same interest: peace and stability in East Asia, and the defeat of global terrorism, which threatens the global trading system on which both nations depend.

Trade and investment are the cornerstones of the bilateral relationship. Great changes have taken place in the development of the American business community over the past few decades.

In 1994 near West Lake, soon after the lifting of the trade embargo by President Bill Clinton, a small group of Americans founded the American Chamber of Commerce in Viet Nam (AmCham). We remain confident in Viet Nam's long-term prospects and as major investors here, American companies have an interest in Viet Nam's continued success.

Our members believe that the business climate can best be helped by actions that increase productivity and reduce the costs and risks of doing business in Viet Nam. We feel the Government can best ensure growth by maintaining macro-economic and political stability, building world-class infrastructure, intensifying its effort on upgrading workforce skills and improving the ease of doing business.

Vu Tu Thanh, chief representative, US-ASEAN Business Council

Vu Tu Thanh

US Ambassador Ted Osius' statement that he wished to make his country Viet Nam's number one investor and largest trade partner in the future is highly feasible. The Vietnamese economy is on an upward trend after slowing down for several years.

American investors are largely interested in areas such as logistics, supporting industries and electronics. Within ASEAN, for US investors, Viet Nam is considered among the very important countries, which also includes Indonesia and the Philippines.

While the economies of Indonesia and the Philippines might be largely influenced by local-vested family businesses, that is not the case in Viet Nam. US investors are seeing more opportunities to expand their operations here.

Are you confident that TPP negotiations can be finalised this year? What do you think are the existing barriers that prevent TPP negotiations from being concluded sooner?

Luong Hoang Thai, head of the Ministry of Industry and Trade's Multilateral Trade Policy Department

All involved countries have progressed to the final phase of negotiation. We are making efforts to technically conclude the negotiations early in the second quarter so that the results can be submitted to leaders for approval.

TPP aims for extremely high standards and this can cause difficulties for many countries, especially in areas such as intellectual property rights or the openness of markets.

Nguyen Dinh Luong

For Viet Nam, the most difficult aspect is how to get other countries to open their markets to Vietnamese goods and services at a degree that benefits Vietnamese enterprises, especially for strong export products. such as garments and textiles, footwear, farm produce and sea food.

Another challenge is that Viet Nam has to adjust laws to suit international standards, especially in intellectual protection and customs management. Viet Nam is one of the negotiation countries with the lowest level of economic development so it has much bigger challenges.

Sitkoff: TPP represents the next step in Viet Nam's integration into the global economy. The agreement will bring great opportunities for both Vietnamese and American people and companies as trade barriers fall. Just last week, a team of senior US trade officials including US Trade Representative Michael Forman visited Viet Nam to work on remaining issues in TPP.

While differences remain, a lot of progress has been made on difficult issues. Viet Nam stands to benefit more than any other country in TPP. I am hopeful that negotiations will be finalised in the coming months. In the meantime, Viet Nam should make every effort to entice foreign investment and resources to help create a stable and modern economy.

Only 20 years ago, Viet Nam-US bilateral trade was under $500 million. Viet Nam now exports more goods to the United States than to any other country. It is a competitive world and there is no time for Viet Nam to be content with past successes.

Economist Nguyen Dinh Luong, former head of the negotiating mission for the Viet Nam-US Bilateral Trade Agreement

In TPP, we are facing much stricter requirements. That means removing all trade barriers, meeting high standards in intellectual property rights and environmental protection, providing a fair playing field between domestic and foreign enterprises, reforming State-owned enterprises and also Government spending.

Administrative reforms have been implemented for years and years, but businesses still have an endless fight to get permits and licences. All this comes on top of tax and customs burdens. Businesses in other countries in TPP are not used to such burdensome procedures.

The efforts to restructure State-owned enterprises have dragged on for so long. The fight against corruption is also a major issue. In other TPP countries, the level of transparency is much higher.

We have to clean up these obstacles before being invited to this larger playing field. This will allow us to be better connected with the world economy and will drive our growth at a faster rate.

Are Vietnamese firms getting ready to move up in the global value chain? Now we have to face stricter requirements on trade, for example such as the requirement for garment and textile makers to only import raw materials from TPP countries.

Thai: Given the expected great impacts on the domestic economy and business community, the Prime Minister has instructed negotiation agencies to regularly consult those directly influenced by these agreements.

Accordingly, the Ministry of Industry and Trade, is working with other ministries to collect information and feedback from business communities across the country. The ministry has also consulted business representatives through the Viet Nam Chamber of Commerce and Industry or related trade associations on each specific issue.

In the coming time, the ministry and the negotiation delegation will continue to collect opinions from enterprises. They will also make information available so enterprises can prepare to take advantage of the TPP as quickly as possible.

Sitkoff: Modern global commerce is charact-erised by sophisticated chains of manufacture and assembly across multiple countries. A trade agree-ment's rules of origin indicate how to treat goods and services from sources that are not party to the agreement.

The standing American position on textile rules of origin – including in TPP – is known as "yarn forward", meaning that all constitutive products in a garment, starting with the yarn and going forward, must be made by a party to the agreement.

In simple terms, the "yarn forward" rule means that the benefits of the agreement accrue to TPP producers rather than outside players, such as China. We believe that an economic system based upon free trade, open markets and private enterprise creates employment, prosperity and stable development – including in the textile and apparel trade.

We feel that to max-imise gains from textile trade, TPP members must have the freedom to source materials and component products from the best suppliers to create the best supply chain. Viet Nam, which had a negligible garment manufacturing sector a decade ago, is now the second largest exporter of garments to the United States, behind China.

Viet Nam is very competitive in this sector and TPP will provide a major boost, although the extent and immediacy of any benefits will depend largely on the fine print of the agreement.

What are the long-term benefits that TPP can bring for Viet Nam? Will we continue be the low-cost market for the world?

Thanh: The trade imbalance between US and Viet Nam will be reduced. Currently, Viet Nam is exporting much more to the US. In the future, this agreement will mean the level of US exports to Viet Nam will increase.

There will be pressure for Vietnamese companies to become more competitive. For example, products will have to meet requirements in quality and also environment requirements. Bad practices will be driven out.

When we move up the value chain and our products become more competitive, it will allow us to export products to third-party countries, such as those in the EU or non-TPP countries as well. It will also require us to improve the quality of human resources.

The quality of human resources is extremely short even in sectors we might think just require low-cost labourers, such as textiles. Many investors told me that it's extremely difficult to find qualified engineers to run production lines in garment factories.

Former Trade Minister Truong Dinh Tuyen said that TPP meant opening the door to more competent, transparent governance and overhauling domestic corporations to become more competitive. I agree with him.

Over the last five years, the inefficiency of Vietnamese SOEs has been fully exposed to the public. TPP will pressure Viet Nam to move forward with the difficult task of restructuring State-owned enterprises to ensure they are managed with transparency, responsibility, and accountability, and that SOEs operate on a "level playing field" with both foreign and domestic private sector enterprises. — VNS